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spk02: Good day, ladies and gentlemen, and welcome to the AMCOR Technology Second Quarter 2024 Earnings Conference Call. My name is Diego, and I'll be your conference facilitator today. Please note, we are having some system issues with our webcast and slide technology, so if you're connected via the webcast, you may not see the slide presentation, but you will hear the audio of this webcast via the webcast link. And a reminder at this time, all participants are in a listen-only mode. To Jennifer Ju, Head of Investor Relations. Ms. Ju, please go ahead.
spk00: Thank you, Operator. Good afternoon, everyone, and thank you for joining us for AMCOR's second quarter 2024 earnings conference call. Joining me today are Gil Roten, our Chief Executive Officer, and Megan Faust, our Chief Financial Officer. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the U.S. GAAP equivalent on our website. We will make forward-looking statements about our expectations for AMCOR's future performance based on information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations. Please note that the financial results discussed today are preliminary, and final data will be included in our Form 10-Q. And now, I'll turn the call over to Gil.
spk07: for AI solutions.
spk13: During the quarter, we maintained focus on our strategic pillars to elevate our leadership
spk07: significant milestone in establishing a U.S.
spk13: manufacturing presence for advanced packaging. We aligned on a non-binding preliminary memorandum of terms with the U.S. Department of Commerce for up to $400 million in grants under the CHIPS and Science Act. These funds will support building a new facility in Arizona, enabling advanced packaging and tests for high-performance computing, AI, communications,
spk07: and automotive markets.
spk13: We look forward to being part of a strong ecosystem of front-end fabs, IDMs, and suppliers in establishing a resilient U.S. semiconductor supply chain. Now let me review the current dynamics in each of our end markets. Revenue in the communications end market increased 10% sequentially. Within the IOS ecosystem, we experienced a larger-than-seasonal increase driven by bills for the full launch of premium-tier smartphones. Revenue within the Android supply chain declined slightly sequentially, but still showed a strong 20% year-on-year growth.
spk07: Our advanced packaging technology supports a wide range
spk13: our proprietary flip chip package on package technology we support the full range of applications from rf and camera to the latest ai enabled apps processors that require high speed and high density interconnect with fine pitch bonding revenue from our automotive and industrial end market was down two percent sequentially recovery in this market is taking longer than anticipated due to weak demand and ongoing inventory corrections. Despite this near-term dynamics, we believe the long-term drivers for growth remain intact. Semiconductor content per car is expected to continue to increase, driven by the proliferation of ADAS, electrification, infotainment, and telematics, all requiring advanced packaging technology. Emcor is the leading automotive OSAT, and has multiple decades of experience meeting the stringent requirements of the automotive industry. With a broad portfolio of advanced and mainstream technologies, an established large-scale manufacturing base in critical regions like Europe and Japan, and trusted relationships with key customers in the automotive supply chain, Emcor is well positioned to support the secular growth in this market when it exits the current cycle. Revenue from the computing end market increased 20% sequentially, driven by strength in AI devices and several new product introductions for ARM-based PCs. We executed on our planned expansion for 2.5D capacity for AI devices, more than tripling our capacity versus second quarter of 2023. In the third quarter, we expect constraints and high bandwidth memory supply to limit revenue growth. mCore is leading the OSAT supply chain with the deployment of 2.5D technology. And with the robust demand and additional capacity, we now expect the full year 2.5D revenue to quadruple versus 2023 levels. We continue to partner with multiple customers on next generation technology, utilizing organic interposers and expect those solutions to be brought to market in the first half of 2025. Revenue from the consumer end market decreased 6% sequentially, driven by the wind down of legacy IoT devices ahead of the expected ramp up of next generation products. Traditional consumer product demand has been muted, but the high volume production ramp of a new wearable product utilizing advanced SIP technology is expected to start in the third quarter. Consumer IoT devices require miniaturization with increasing levels of integration. Our advanced SIP technology for heterogeneous integration positions us well to meet these requirements, and our new Vietnam facility enables us to continue to drive manufacturing scale and innovation. During the second quarter, our manufacturing organization had to manage multiple challenges. On one hand, several factories still showed low utilization, where focus was on cost control while maintaining high-quality standards. On the other hand, we executed the capacity ramp for 2.5D technology in Korea, qualified advanced SAP and memory technology in Vietnam, and prepared for the steep seasonal ramp in the third quarter. Additionally, the team further progressed with our advanced packaging and test facility in Arizona by advancing factory design and construction planning and working with customers to develop the technology roadmap and capacity loading scenarios. During the second half of the year, cost and quality, together with managing a steep seasonal ramp, will remain top priorities. Now let me turn to our third quarter outlook. Considering current market conditions, we expect third quarter revenue of $1.835 billion at the midpoint of guidance. This represents sequential growth of 26% driven by advanced packaging in support of the seasonal launch of premium tier smartphones, the ramp of a new consumer wearable device, and continued strong demand in high-performance computing and ARM-based PCs. The slower-than-expected recovery in the automotive and industrial markets, together with the continued weak demand in traditional data centers, has dampened anticipated growth in the third quarter. Looking forward, we remain confident that the secular growth drivers for the industry remain in place. With our strong technology leadership in advanced packaging, a uniquely diversified global footprint, and partnerships with lead customers, we are well positioned to accelerate while exiting this cycle. With that, I will now turn the call over to Megan to provide more detailed financial information.
spk01: Thank you, Giel, and good afternoon, everyone. Amcor delivered second quarter revenue of $1.46 billion, This was in line with guidance and represents a 7% sequential increase driven by strength in advanced SIP and 2.5D technology. Second quarter gross profit was $212 million and gross margin was 14.5%. While gross margin declined modestly from Q1 due to higher material content, Gross profit dollars expanded 5%. Operating expenses for the quarter came in lower than expected at $131 million. We expect Q2 to be the peak for operating expenses in 2024 due to preparation costs for our factory in Vietnam. We are on track to begin production in Vietnam in Q3, and we expect a portion of the costs to move sold when production begins. Operating income was $82 million, and operating income margin was 5.6%. Net income for the second quarter was $67 million, resulting in EPS of 27 cents. Second quarter EBITDA was $247 million, and EBITDA margin was 16.9%. Our balance sheet remains strong. We ended the quarter with $1.5 billion of cash and short-term investments and total liquidity of $2.2 billion. Our total debt as of the end of the quarter is $1.1 billion and our debt to EBITDA ratio is one times. Moving on to our third quarter outlook, we expect Q3 revenue of around $1.835 billion. representing a significant sequential increase of 26%. Our Q3 increase is primarily driven by advanced SIP products, supporting the fall launch of premium tier smartphones, as well as a next generation consumer wearable product. While we have expanded our capacity for 2.5D technology supporting AI devices, high bandwidth memory constraints may limit sequential revenue growth. Given the soft demand and ongoing inventory corrections in the automotive and industrial market, we anticipate this end market may stay fairly flat compared to Q2. We expect gross margin to be between 14% and 16%. We are anticipating a higher than seasonal material content due to a product mix concentrated in advanced SIP. While this does constrain gross margin, absolute profitability will expand at a much higher growth rate than revenue. We expect Q3 operating expenses of around $125 million. We expect our full year effective tax rate to be around 18%. Third quarter net income is expected to be between $105 million and $140 million, resulting in EPS of 42 to 56 cents. This represents more than an 80% increase in profitability compared to Q2. Our CapEx forecast for the year remains at $750 million. Our investments are primarily focused on increasing advanced packaging capacity for 2.5D and advanced SIP with the U.S. Department of Commerce to receive up to $400 million in direct funding as a part of the CHIPS and Science Act. We are proud to be the leading advanced packaging and test OSAT headquartered in the U.S., and this milestone underscores our commitment to ensuring U.S. semiconductor manufacturing security and innovation. In closing, AMCOR continues to execute on our three strategic pillars. First, technology leadership by providing expanded capacity to support growing demand for 2.5D-enabling AI. Second, expanding our broad geographic footprint by hitting a significant milestone with our U.S. manufacturing plans and signing a preliminary memorandum of terms for CHIPS funding. And third, our focus on industry megatrends. We believe that the secular growth drivers for the industry remain in place and that our partnerships with leading semiconductor companies will drive future growth as we exit the cycle. With that, we will now open the call up for your questions. Operator?
spk14: And we will now conduct our question and answer session.
spk02: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And our first question comes from Tom Disley with DA Davidson. Please state your question.
spk04: Yes, good afternoon. Thank you for letting me ask a few questions. Megan, first question on the model itself. When you look at the margin guidance versus previous expectations for increased incremental gross margins as you ramped up revenue, I'm curious, how big of an impact is it moving from the operating expense line to the gross margin line of the new facility? What is the relative kind of quarter-over-quarter impact of that?
spk01: Sure. Hi, Tom. With respect to the Vietnam production facility going online, that movement from operating expenses, the order of magnitude isn't going to be that much more than what you're seeing in our guide between Q2 and Q3 going down. So that's less than $10 million. That is not the biggest impact to the Q3 margin guidance.
spk04: Okay. So when you look at the Q3 margin guidance, what is the biggest impact that's kind of counteracting just the revenue growth incremental margin?
spk01: Yeah. So really what's happening with respect to our Q3 profitability is it's a function of utilization of as it relates to certain products and product mix. So while we are anticipating an increase in our utilization in Q3, probably in the low 70s, the way that that's spreading amongst our factories is very dynamic. We have high utilization in factories such as Korea that are supporting advanced SIP, while others are much lower than expected and as what we had estimated previously. And that's really due to some ongoing lower demand in our traditional consumer, traditional data center, and as we had mentioned in our prepared remarks, in the automotive and industrial. So with respect to those dynamics, we are going to see a peak seasonal material content in Q3. So that's the biggest driver that will constrain flow through. That is just a function of demand and product mix. It's not a structural cost. So that's where your first question about the Vietnam cost, it's not structural. In fact, the manufacturing costs estimated for Q3, which we characterize as labor, depreciation, and OCOG, that excludes materials, those are only going to increase in the single digits. as compared to the 26% increase in revenue.
spk04: Great, okay, now I appreciate all the extra color on the margins. And then, Hill, when you look at the PC and server market, you talked about how some of the new PCs were getting more active, but yet the servers were still pretty weak. Is that different than normal seasonality? Is there seasonality in that, or is it really just a cyclical impact that you see in the PC and servers?
spk13: Yes, Tom, let me try to give a little bit of color there. Well, first of all, we see some initial recovery in the general PC market, where we see specific growth for mCore is in the ARM-based PCs, and they were ramping up starting Q1, and that goes into Q4 of this year with significant ramps, and that goes across multiple customers here.
spk07: So it's the general PC market gradually recovering and very specifically ARM-based where we have a good position. It's ramping up in the course of this year.
spk04: Okay, and then just on the server side, what's your expectation for that recovery?
spk13: Sorry, can you repeat?
spk04: Oh, just for the server chips and the server market itself?
spk13: Well, I mean, the server market is a broad market. I mean, if we take the category of AI-based servers, then we expect that to continue to grow into the remaining part of this year and also into 2025. For the conventional servers, we still see weakness. We believe that in data centers, the investments that are being made by the hyperscalers are are really tuned towards the AI servers, and that means that the more, let's say, conventional servers are still fairly weak. So far, I cannot report an improvement there.
spk02: Thank you. And our next question comes from Charles Shai with Needham & Company. Please state your question.
spk03: Hi. Hi, Megan. I want to ask a couple of questions. First, I'm glad to hear that you guys are getting traction on the organic interposer. You will come to the market in first half next year, 2025. I wonder, can you provide us a little bit more color? Because I believe you have three customers on your 2.5D. technology, at least that was the case 90 days ago. Wanda, if you can give an update. And two, what's the mix in terms of the engagement with your customer? How many are sticking with the silicon interposer and how many are actually looking at the organic interposer ramp with you in first half next year? And if I may, the third part of this question, would be the tools you put in place for silicon interposer based at 2.5D versus organic interposer based at 2.5D. Are they fungible? Thank you.
spk13: Yes, hi, Charles. Good to hear you. Let me start with the last part of your question with respect to the tools that we are investing in. A bit more specifics there. I think we are the first range of investments finalized in the second quarter. And we went for a second tranche of the same order of magnitude of investment that will become available in the early part of 2025, late this year, early part of 2025. Most of these tools are fungible across wafer-based technology. So that's both 2.5D with interposer as well as what you call organic interposer or high-density fan-out technology. Now, with respect to the transition from one technology to another, for the organic interposer, we are engaged with a broad range of customers, let's say between five and ten customers, where we're currently running pilot production, initial runs, and we expect to ramp into mass production early 2025. That engagement is broader from a customer engagement perspective and also from a product portfolio perspective. If we take the traditional two-and-a-half-dish with Interposer, then we indeed have in the order of magnitude of three to five customers where we run, let's say, a variable range let's say volume production currently, and we expect that to continue into 2025 also. So although initially there was expected a faster changeover from one technology to another, we now see that 2.5D will continue well into 2025. Thank you.
spk03: yeah that's great um may i ask you a second question uh maybe to megan hey megan i think uh you previously expect uh uh 30 percent half over half uh revenue growth uh uh understandably uh there there's a little bit of a softness still in auto in in traditional consumer 2.5 d ramp looks like there's some upstream constraints on the hbm side uh is that would does that change that 30% half-over-half growth outlook you originally thought is going to be the case, let's say, 90 days ago?
spk01: Hi, Charles. Yeah, so while there may have been some mixed shift changes and we did perform slightly better in the second quarter than expected, our full-year top-line expectations have not fundamentally changed. We are expecting, you know, a muted first half followed by a stronger-than-seasonal significant growth in the second half. And what's driving that is also consistent with respect to our strong seasonal iOS launch cycle, our new consumer wearable program. We have installed and have incremental capacity for our 2.5D. However, that will be limited somewhat with some of the high bandwidth memory constraints. And really the only change then is with respect to the ongoing automotive and industrial changes continuing to be weak. However, for automotive and industrial, we do expect Q2 to be the trough, and we are expecting some mild recovery and increase in Q3. So overall, with respect to the shape of the year, with Q1 and Q2 outperforming somewhat, that might have adjusted the shape, but the full year expectations are the same.
spk02: Thank you. And our next question comes from Randy Abrams with UBS. Please state your question.
spk12: Okay, yeah, no, thank you. Yeah, I wanted to follow up just on that, the prior comments you made on Outlook. Just a couple clarifications, one on the HBM constraints. Is that a view, is it a production or yield issue that's limiting the ramp-up? And is there visibility or how you're feeling is how long that – constraint holds. And then I wanted to ask about, I think your full year relatively unchanged, despite a little bit of impacts on third quarter. So the, if you could give an initial view, just the tail end of the year, fourth quarter, are you seeing above seasonal and what do you see as kind of drivers continuing into Q4?
spk13: Okay. Let me try to, to give a little bit color on the high band with memory. Um, Now currently we're working with all three suppliers for high bandwidth memory, so we're fully qualified for all three. The constraint is not related to yield, it's related to supply from high bandwidth memory, mostly from the biggest supplier there. It started by the end of the second quarter, and it goes into, let's say, this month, and we expect that the next two months of the third quarter, it will normalize. But overall, it has some impact on further revenue growth in the 2.5D business. With respect to your second part of the question, what are the drivers in second half growths,
spk07: You know, there are in line what we expected in the, let's say, at the end of the first quarter.
spk13: The main drivers are, as Megan already highlighted, are the ramp of seasonal launch in the iOS system, together with Android recovering. So although that in the second quarter and continue in the remaining part of the year. So definitely in the communication side, we expect strength in the second half.
spk07: Also, the ramp of the IOT.
spk13: is the trough and that from here on we see a much more balanced supply chain. The inventory situation on motor up segments and automotive is much more balanced than it was when we started this year and the feedback from our customers is
spk12: Okay, and maybe to clarify, I guess, two quick follow-ups. The flat plus or minus, so it sounds like you're implied as it's rolling all those pieces up at this stage. It seems like it's a little better. And I guess just the other clarification, the iOS, and it seems like your competitor also cited a little bit earlier build.
spk07: It feels like it's actually stronger, so that kind of ties to the fourth quarter being better than that flat plus or minus. Yeah, we believe it's ramped, and also we saw a very large correction in the first quarter, so I
spk02: Thank you. And our next question comes from Craig Ellis with B. Reilly Securities. Please, to your question.
spk11: The changes in views versus three months ago in auto industrial, the traditional server part of the PC market and some of the upstream constraints in high bandwidth memory. I'm wondering if it's possible to, one, just rank those in terms of how they're impacting the business in the third quarter versus what you would have expected three months ago. And then in aggregate, can you quantify what that impact is versus what you were thinking back in the April time frame?
spk01: that there's really not a baseline for us to compare to. But as far as it does relate, we did indicate, you know, margin profile, which would have had a product mix associated with that. The auto and industrial, we had expected that to start to recover faster than it is. So that's probably the largest of the three that you mentioned, followed by the traditional data center. That one also has continued to the slower start. on the incremental capacity that we've installed given some of that high bandwidth memory constraints that we are seeing start to come back through. So from that perspective, that's the order of a magnitude on those three items.
spk11: That's really helpful. Thanks for clarifying, Megan. The second thing I wanted to do is just understand the ANI market dynamic a little bit better. So it's encouraging to see that the business should be up a little bit in 3Q. The question may be more for Hiel regarding what you're hearing from some of your bigger customers in that area and admittedly,
spk13: First of all, you know, on calling the second quarter this year the trough quarter for automotive, that seems to be across our customer base a consistent message. There are a few exceptions there, but the portfolio that they serve for the automotive market is slightly different. So if you look to our own exposure to the automotive markets, then our customers really consistently give us the message the second quarter is the trough. Going from here, and if you take the impact on MCOS revenue on a year-on-year basis, it's roughly 20%.
spk07: Say the improvement in the second quarter,
spk13: In the third quarter, it's still moderate.
spk07: Let's say low to medium.
spk13: Well into 2025 before we are back to our normal run rate. That's one thing. Second thing is, of course, for us it's very important to check our market position and validate that and we're convinced that we're still gaining market share in the automotive markets. And you may have seen the announcement in Europe with one of the bigger power companies in automotive for silicon carbide, where we're investing. Overall, yes, step-by-step improvements into Q3, Q4, and further improvement into 2025. To exactly predict when we are back at the full run rate is difficult to say, although some feedback from customers, the, let's say, inventory situation. So currently, you know, some of the tier ones seem to go back to, to a two-week inventory level. So you may see a swing there getting out of this correction in 2025.
spk07: But for now, I think that's our assumption.
spk02: Thank you. And our next question comes from Ben Reitzes with Mellius Research. Please, to your question.
spk09: Yeah, hi. Thanks for the question. I wanted to talk about gross margin and utilization rates. So if you could just discuss the puts and takes on gross margin as we head into the second half.
spk07: Looks like about a half a point improvement.
spk01: really strong growth as it relates to communications and consumers that is primarily supported by our advanced SIP technology, and that has a very high material content. So while that is constraining the gross margin to around 15%, we are seeing very significant bottom line earnings expansion. So you'll note that our bottom line EPS is growing more than 80%. So there continues to be significant leverage in our financial model. You also asked about potential Q4 puts and takes. While we're not guiding Q4 at this time, we do anticipate some of those product mix items to have some growth, as Gil has just mentioned, with respect to automotive, as well as our 2.5D technology specifically. And then you also asked about the depreciation change in useful life. That was a five cent benefit and had an impact of, you know, around 100 basis points in Q1. That's a fairly similar impact for Q2. That will also, you know, be similar, albeit it will somewhat decline as we get into the second half and some of those assets roll off. Did that address your question, Ben?
spk09: Yeah, so the depreciation was still a five-cent benefit in the quarter you just had, and it'll diminish as you go throughout the year. Correct.
spk01: Is that right? Yes, comparable to Q1.
spk09: Okay. And then just with regard to the interposer comment that Hill made, that for the first half of 25, is there anything that we need to be aware of with regard to seasonality or impact on margin, you know, as you make that transition and help those customers move to that? Is there something that, you know, with regard to the model that when it comes out that we should be aware of?
spk13: Well, a few comments there, Ben. You know, with respect to the organic interposer versus the 2.5D with interposer, The value add that we deliver in organic interposer is more significant. It's larger than for 2.5D because there we procure the interposer.
spk07: That interposer is not present there, but we deliver it.
spk13: How that transition exactly pans out depends on the product changeover. And what we're currently seeing is that products in the older technologies seem to last longer and that some of the newer products may just a little bit later than expected, but that's the impact that we foresee.
spk09: Okay. So it's safe to say, just going back, that communications are better than expected, and that's continuing throughout the year. Is that the same case with the AIPC? Because there's been some reports that the AIPC has been a little muted, but you're saying it's going to increase sequentially throughout the year. I believe that hits in the computing segment. So are you seeing strength in the AIPC area like you are in smartphones, or are you seeing it kind of below expectations? That's my final question. Thank you.
spk13: Overall, the absolute revenue in AIPC is still small. However, the transition from x86 to ARM, we started with our lead customer three generations ago, and they're currently ramping up. They're also expanding their own silicon in that same PC, so that gives us more traction, but also a second customer. that launched their products that seemed to be very attractive for the PC makers. And they're now launching new products in the market with that architecture. So we believe it will have legs and it will further grow. You know, some specifics over the growth during the year or in the year. We see, you know, that over the quarters, there is a step up quarter on quarter. And from what we see now, that will continue into 2025.
spk02: Thank you. And our next question comes from Toshi Yahari with Goldman Sachs. Please state your question.
spk05: Hi, good afternoon. Thank you for taking the question. My first one is on Q3, your Q3 revenue guide. Megan, you mentioned auto industrials should be up modestly, if I caught that right. I'm curious how you're thinking about comms, consumer, and computing. Comms from a seasonality perspective, I'm guessing strong double digits, but computing in particular with some of the HPM constraints that you spoke to, can that business grow double digits, or is it more like single digits? Any sort of quantitative context there would be super helpful.
spk01: Hi, Toshia. Yeah, I can give you some color there. So as mentioned, automotive, we said, would have mild mild growth sequentially. As it relates to computing, we aren't seeing that double-digit growth that was possible given some of the dynamics with the high bandwidth memory constraints. So that's also going to be in the low to mid single digits for computing. Communications is going to be very strong. Historically, we've seen very, very strong sequential communications ramp. That being said, we did have a stronger than seasonal Q2, so that Q3 seasonality will probably be a little bit softer, but overall it'll be very significant. Consumer, however, with our new launch of a IoT wearable device, that will have the largest percentage increase sequentially for the quarter, and that can be up to 75% or more sequential growth given the scale of that launch.
spk05: That's very helpful. Thank you. And then as my follow-up, a multi-part question on the U.S. facility. I know it's early, but just wanted to get a feel as to how you're thinking about Arizona. So timing of CapEx or capital spending outlay over the next, you know, couple of years, several years, in terms of ChIPs Act funding, how does that come through? And, you know, again, long term, what percentage of capacity do you expect to have in the U.S. and the cost competitiveness of your facility in the U.S. vis-a-vis your current location? Any color around there would be very, very helpful. Thank you.
spk13: Okay. Well, let me start, and then Megan can help on the financial part, Toshi. Okay. You know, the facility that we're planning to build in the U.S. is a sizable facility. I think we started off with a 40,000 square meter clean room, and currently we're working with the design companies to look at closer to a 60,000 square meter clean room. So it's sizable. How much will it contribute to MCOR total? I think it will be less than 10%, significantly less than 10% of our total. But that's the order of magnitude that we will grow to in the future. The rate of growth and which customers and which technologies that we will ramp up, I think that's currently under evaluation. We are working with customers on the roadmap and on the ramp scenarios for that facility. And there is definitely a high interest in the high-performance computing part, but also in the communication part. So early to tell, but it's a significant sizable facility in the size of what we're currently having in our K5 facility in Korea. And the same technologies will run in the U.S. as what we're currently running in in Korea.
spk01: I can add a few comments on the investment. As far as it relates to 24, this won't have any material impact on our 2024 investment. We'll start to see some of that CapEx come into play in 2025 as we're planning to break ground in the second half of 2025. But the most significant investments, which will include our machinery and equipment, Those will happen in 26 and 27. So as it relates to CHIPS funding, it's a bit too early to tell. Typically, those will lag the investments themselves. So as we get closer, we'll update you. With respect to 25, we do anticipate being able to continue in our low-teens capital intensity.
spk05: Very helpful. Thank you so much.
spk02: Thank you. And our next question comes from Chris Sankar with TD Cowan. Please take your question.
spk10: Thank you for your question. I have a first question. You mentioned sensing AI and ARM-based computers are strong. I understand it's very small. Is there a way to quantify how much ARM, especially the compute revenues or total revenues is today? And where could it be exhibiting talent in front of close? And how do people know the shape of the growth along itself?
spk13: Hi, Chris. You know, the line is not very clear, but the part of your question, the second part was, as I understood it well, the revenue contribution of AI currently. You know, what I can say there is that we shared the capacity ramp that we triple our capacity by the second quarter of this year. and we executed upon that. What we can share on top of that is that we share for 2024, we will quadruple our revenue versus 2023. So it's a significant ramp for the year. You know, the exact percentage of total revenue for MCOR is still in the single digits, but it's growing rapidly.
spk10: Gardner, here I was just looking more specifically on RU. as opposed to your compute revenues or program revenues. So it's simply small. Is it better to do that?
spk13: Sorry, I think we missed the line. It's breaking up. Let me look here at Jennifer. Jennifer, can you repeat, Krish?
spk10: Yeah, I'm trying to figure out how you have the percentage of your compute revenues. How much is it today?
spk13: Our compute revenue to date is As a percentage of total revenue, let me find that for you. It's in the order of 15% to 17% of total revenue.
spk10: And all PCs, like the non-X86 PCs, how much is that?
spk13: Oh, you know, we don't go into the details. I just mentioned before that that category of PCs is just ramping up now. We have two main customers being introduced in the market. It's still below $100 million of revenue in the quarter, so it's still relatively small.
spk10: Got it, got it. And then a follow-up for Megan. Thanks to the comment on the $400 million in TNT from Chipsat, But if I understand it well, you know, the $400 million in P&T you get from CHIPS Act, it implies you're going to spend a total of $2.7 billion in capex, or probably $2.3 billion out of your own pocket. Is that a fair assumption? And you mentioned that the majority will come in calendar 46, 47. So should we assume this $2.3 billion will be spent from calendar 25 to calendar 47 or calendar 28?
spk01: So, Krish, again, we're trying to make sure we heard your question appropriately. I think you're referring to the timing and magnitude of our U.S. investment and how that counterplays with the CHIPS funding. You know, for the full project, we're expecting to spend about $2 billion. We are going to do that in phases, which is what this particular CHIPS program is aligned to. So as it relates to phase one, we expect that to, within the next three years, be up and running. So we will have had an investment in the order of magnitude of $1.5 billion in order to get that phase up and running to its fullest. The timing of that investment will be concentrated in 26 and 27 years. And the CHIPS reimbursement traditionally will lag that investment as it relates to that. We can't share further details on that at this time.
spk02: Thank you. And our next question comes from Randy Abrams with UBS. Please state your question.
spk12: Okay. Yes. Thank you. Just a couple follow-up questions. First, for the gross margin, it seems like the one area lagging aside from SIP is the mature nodes. So curious, as you go into next year and you see pickup, how the leverage is, and then also how do you see the fall through for leverage for investment in the advanced packaging, given you have to spend to grow that business?
spk13: Okay. Let me start to give some initial comments here on mature nodes.
spk07: You know, mature nodes, you know, for M
spk13: towards the automotive and industrial markets. So we're not exposed to the commodity segment of the mature node markets where there's significant competition from China evolving supply chain. So we believe that in the automotive markets, although they decline significantly year on year, we were able to hold our market position for mature nodes in the automotive markets and we work with critical customers there, mostly in Europe, US, but yeah, on our manufacturing, but also in Japan. And the dynamics in each of these markets is similar, but not completely the same. But we expect that going towards the end of the year and early next year, we'll see a gradual recovery there. That relates to the mature notes with respect to The investment in advanced packaging, we already mentioned the profitability for that investment portfolio and that product and service portfolio is higher than corporate average. And we believe that's a good investment for the company. We also believe that the 2.5D and the high-density fan-out technology is a technology, let's say, is developing as a standard technology in the high-performance computing and AI domain. We have a leadership position there, and given the interest we get from a broad customer base, we believe that that will be a sustainable position going forward.
spk12: And the final question I just had on the OpEx, with the ramp-up of all these more complex technologies, do you see change in R&D intensity or OpEx level that you need to spend like absolute dollars to have to pick up or OpEx ratio to advance some of these new technologies?
spk01: Hi, Randy. Yeah, we continue to focus and invest in R&D in order to ensure that we're supporting our customers in these new technologies. We don't see what I would characterize as step function in R&D. You know, that can be lumpy from time to time where we have programs that are accelerating before they move into production and move into COGS. I would say from a total OPEX perspective, I wouldn't see that increasing above 8%.
spk02: Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Giel for closing remarks.
spk13: Okay. Thank you. Let me recap the key messages. mCore delivered second quarter results in line with our expectations, with revenue of $1.46 billion and EPS of 27 cents. We successfully brought online additional capacity for 2.5D technology, and qualified our Vietnam facility to support production ramps in the third quarter. We are expecting third quarter revenue to grow significantly with revenue of with the U.S. Department of Commerce and aligned on a preliminary memorandum of terms for up to $400 million in direct funding under the CHIPS and Science Act to support our planned advanced packaging and test facility in Arizona. Looking forward, we remain confident that the secular growth drivers for the industry remain in place, and with our strong technology leadership in advanced packaging, a uniquely diversified global footprint, and partnerships with lead customers, we are well positioned to accelerate while exiting this cycle. Thank you for joining the call today.
spk02: Thank you. Ladies and gentlemen this concludes today's conference call. You may now disconnect.
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